Motor finance customers could receive a pay out after the FCA announced it will consult on an industry-wide compensation scheme.
Many motor finance firms were not complying with rules or the law by not providing customers with relevant information about commission paid by lenders to the car dealers who sold the loans.
The FCA has moved quickly on steps to set up a proposed compensation scheme because it wants to provide clarity and certainty to consumers, firms and investors as quickly as possible.
It also wants to ensure the integrity of the motor finance market so it works well for consumers now and in the future. The compensation scheme would balance principles including fairness, timeliness, and certainty.
Nikhil Rathi, chief executive of the FCA, said:
'It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated. We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.
'Our aim is a compensation scheme that’s fair and easy to participate in, so there’s no need to use a claims management company or law firm. If you do, it will cost you a significant chunk of any money you get.
'It will take time to establish a scheme but we hope to start getting people any money they are owed next year.'
The announcement follows Friday’s landmark ruling by the Supreme Court, on cases in which the FCA had intervened. While some motor finance customers won’t get compensation because in many cases commission payments were legal, the Court ruled that in certain circumstances the failure to properly disclose commission arrangements could be unfair and therefore unlawful.
The FCA will propose rules on how lenders should consistently, efficiently and fairly decide whether someone is owed compensation and how much. It will monitor if firms are following the rules and act if they’re not.
The FCA currently estimates that most individuals will probably receive less than £950 in compensation per agreement.
The final total cost of any compensation scheme will depend on the final design. That makes it hard to estimate precisely. Any estimates are only indicative at this stage and may change. The FCA thinks it unlikely the cost of the scheme, including to run it, would be much lower than £9 billion. And it could be higher, up to £18 billion in some scenarios though the FCA doesn’t believe these are the most likely. A total cost midway in the range, as forecast by some analysts, is more plausible.
The consultation will launch by early October. If the compensation scheme goes ahead, the first payments should be made in 2026.
People who have already complained don’t need to do anything. Consumers who are concerned that they were not told about commission and think they may have paid too much for their motor finance should complain now[2]. Consumers do not need to use a claims management company or law firm and doing so could cost them around 30% of any compensation paid.
The FCA recognises that consumers want to receive any compensation owed quickly and firms and investors want certainty. The regulator will be working intensively and engaging widely over the coming weeks on the detail of how a scheme would work.
Notes to editors
- The full market statement: FCA to consult on a compensation scheme for motor finance customers[3]
- The Supreme Court judgment[4]